Banks take spotlight as earnings season heats up

Sun Oct 11, 2015 2:46pm EDT
 
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By Chuck Mikolajczak

NEW YORK (Reuters) - The financial sector, recently a weak performer in the stock market, will garner the majority of investor attention this week as a number of big banks post their quarterly results.

Goldman Sachs Group Inc, Bank of America Corp, Wells Fargo & Co, Citigroup and JPMorgan Chase & Co - the five biggest U.S. banks by market cap - are due to report results as the sector has trailed the market in recent weeks and earnings estimates have fallen.

Financial companies are expected to show earnings growth of 8.4 percent, behind only telecoms and consumer discretionary companies in expected growth for the quarter. However, that growth is down from the 14.8 percent expected at the start of the quarter, and down by half from the 17.8 percent growth expected at the start of the year.

In the last 30 days, banks have seen their estimates steadily lowered, with Goldman the biggest victim. Its estimates for the quarter are down by 25 percent in that time period.

While the broader market has recovered from losses sustained in the latter half of August, banks have struggled. The Fed's decision not to raise rates, coupled with economic concerns and worries about trading revenues, have tethered shares of the big banks.

Federal Reserve Vice Chairman Stanley Fischer said on Sunday that policymakers are still likely to raise interest rates this year but that is “an expectation, not a commitment,” and could change if the global economy pushes the U.S. economy further off course, further clouding the outlook for banks.

The S&P 500 financials index has underperformed the broader market, and has slumped 5.6 percent this year so far, compared with a 2.2 percent decline in the S&P 500. In the last month, the S&P 500 has gained 2.2 percent, but the five biggest financial institutions are all flat or down.

The banks give an idea of the activity of mid- and small-sized businesses, which can help gauge the health of the broader economy, according to Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.   Continued...

 
The Bank of America building is shown in Los Angeles, California October 29, 2014.    REUTERS/Mike Blake